Secured lenders to Thompson
Publishing Holding Co. won’t be able to control the auction for
the publisher of newsletters and loose-leaf services, as the
result of rulings by U.S. Bankruptcy Judge Peter Walsh at a
hearing this week.

The U.S. Trustee objected to proposed auction and sale
procedures. According to the bankruptcy arm of the U.S. Justice
Department, the lenders could control the auction “at every
step.” Walsh agreed with the U.S. trustee, with the result that
the lenders are no longer able to control Thompson’s decision
about who’s qualified to bid and who made the best offer at
auction.

The rulings were important in the Thompson case because the
lenders are aiming to buy the business in exchange for debt. The
revised auction and sale rules only oblige Thompson to consult
with the lenders. Thompson must also consult with the creditors’
committee regarding important decisions in the course of the
auction.

Competing bids are due Nov. 12, in advance of the Nov. 17
auction and the Nov. 19 hearing for approval of the sale.

Absent a competing offer at auction, the first-lien lenders
intend to buy Thompson in exchange for $42 million in secured
debt. The lenders also will assume liabilities on subscriptions
and obligations to employees.

Based in Washington, Thompson has 300 products and 70,000
subscribers. The company expects revenue will decline this year
to $49 million. Debt includes $122.6 million owing on first-lien
debt with PNC Bank NA serving as agent. Second-lien creditors,
owed $43.5 million, have Ableco Finance LLC as agent.

Controlled by Avista Capital Partners LP, Thompson
generated 74 percent of income from subscription. The company
also arranges conferences and employee training events.

The case is In re Thompson Publishing Holding Co., 10-
13070, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Updates

Black Diamond Capital Wins Approval to Buy Bear Island Paper

Bear Island Paper Co. LLC and its Canadian parent White
Birch Paper Co. represented the unusual case in which it wasn’t
immediately evident who submitted the highest or best offer at
auction. Ambiguity arose because the ultimately prevailing
bidder group submitted a credit bid where not all the assets
were collateral for the loan.

The two bidding groups filed post-trial briefs last week,
and U.S. Bankruptcy Judge Douglas O. Tice read his ruling from
the bench yesterday when he concluded that Bear Island was
correct in selecting the original bidders as having the best
bid. The winning group is comprised of Black Diamond Capital
Management LLC, Credit Suisse Group AG and Caspian Capital
Advisors LLC.

The winners offered $172.5 million, or $94.5 million in
cash and $78 million as a credit against secured debt. The Black
Diamond group estimated that their offer would generate $90
million to $94.5 million in cash for assets not representing
their collateral. The winners hold 65 percent of the $438
million in first-lien debt.

They were opposed by another group of first-lien lenders
that own 22 percent of the senior debt. The losing side included
funds managed by BlueMountain Capital Management, Lombard
General Insurance Co. of Canada, Macquarie Americas Corp. and
Wexford Capital LP.

Based in Nova Scotia, White Birch and U.S. subsidiaries
filed for reorganization simultaneously in the U.S. and Canada
in February. White Birch is the second-largest newsprint maker
in North America.

Secured liabilities include $438 million on a first-lien
term loan, $104 million on a second-lien term loan, $50 million
on an asset-backed revolving credit, and $51.5 million on swap
agreements. Trade suppliers are owed $9.5 million. The companies
had $667 million in sales during 2009, with $125 million
attributable to Bear Island. White Birch has three pulp and
paper mills in Quebec. The Bear Island plant is in Ashland,
Virginia. White Birch is controlled by Brant-Allen Industries,
according to Bloomberg Data.

Whether Tamarack Resort LLC will be able to survive the
winter is in the hands of the bankruptcy judge. The golf and ski
resort in Valley County, Idaho, completed a two-day trial
yesterday attempting to convince U.S. Bankruptcy Judge Terry L. Myers in Boise, Idaho, that it’s proper to approve $2 million in
secured financing.

Myers heard Tamarack explain why the property can’t be
winterized without financing. On the other side of the fence,
holders of mechanics’ liens argued that there is no protection
for their security interests which they contend come ahead of
$293 million in existing secured debt.

The financing requires approval of a restructuring officer
to take over operations and the sale effort.

The financing would be provided primarily by Candlewood
Special Situations Master Fund Ltd. and an affiliate of Credit
Suisse AG, Cayman Islands Branch, the existing lender. Court
records say that a decision by Myers on financing will be
“forthcoming.”

The Tamarack case began with an involuntary petition in
Chapter 7 that the company unsuccessfully opposed. The company
converted the case to Chapter 11 in April. Tamarack conceded it
was not paying debts as they mature.

Myers granted the motion for conversion to Chapter 11 even
though the Chapter 7 trustee had been named in March.

The new case is In re Tamarack Resort LLC, 09-03911, U.S.
Bankruptcy Court, District of Idaho (Boise). The previous case
was In re VPG Investments Inc., 08-00253, U.S. Bankruptcy
Court, District of Idaho (Boise).

Vessels Trico Moon and Trico Mystic will go for $13 million
each. The Trico Sabre and Trico Star will fetch $25 million
each. The Sabre and Star are owned by Trico subsidiaries not in
bankruptcy. As a technical matter, Trico is asking the
bankruptcy court in Delaware only to approve the Moon and Mystic
sales.

The hearing to approve the sales will be held Nov. 4. Trico
used a broker to market the vessels.

Trico was authorized in this month to sell the vessels
Spirit River and the Truckee River for $8.5 million to
NigerDelta Shipping Agency Ltd.

Trico’s Chapter 11 filing in August was the second by the
Woodlands, Texas-based company. It completed a so-called
prepackaged reorganization in early 2005 by exchanging $250
million in debt for equity. Shareholders were given warrants.

Apart from a Cayman Islands holding company, none of the
foreign subsidiaries are in bankruptcy the second time around.
The consolidated balance sheet for June listed assets of $904
million and liabilities of $1.027 billion. The bankruptcy
petition listed liabilities of $354 million for Trico Marine.

Liabilities include $202.8 million on secured convertible
debentures and $150 million owed on unsecured convertible
debentures. Non-bankrupt Trico Shipping owes $400 million on the
11.875 percent senior secured notes.

The new reorganization is being financed primarily with a
$35 million secured credit facility supplied by Tennenbaum
Capital Partners LLC.

The case is In re Trico Marine Services Inc., 10-12653,
U.S. Bankruptcy Court, District of Delaware (Wilmington).

St. Vincent Wins Approval to Sell Three Facilities

St. Vincent Catholic Medical Centers, a shuttered 727-bed
acute-care hospital in Manhattan’s Greenwich Village, received
formal authority this week to sell the inpatient and outpatient
behavioral health services operations in Westchester County, New
York, to St. Joseph’s Medical Center.

The price is $18 million cash and the assumption of $5
million in debt.

St. Vincent also received approval to sell two nursing
homes in Brooklyn, the Holy Family Home and the Bishop Mugavero
Center for Geriatric Care. Holy Family went for $17.26 million
while Mugavero brought $30.7 million. The Holy Family Home has
200 beds while the Mugavero facility has 288 beds.

St. Vincent’s has now been in Chapter 11 twice. The second
time is a liquidation. The new petition in April listed assets
of $348 million and debt of $1.09 billion. The hospital ended
the prior reorganization in July 2007 with a Chapter 11 plan
claimed at the time to have a “a realistic chance” of paying
all creditors in full. The prior reorganization left the medical
center with more than $1 billion in debt. When the first
bankruptcy started in July 2005, St. Vincent had seven operating
hospitals. Five were sold.

The main facility has 941,000 square feet in 10 buildings.
The nonprofit hospital is sponsored by the Catholic Diocese of
Brooklyn and the Sisters of Charity. It was founded in the mid-
19th century.

The new case is In re Saint Vincent Catholic Medical
Centers of New York, 10-11963, U.S. Bankruptcy Court, Southern
District of New York (Manhattan). The 2005 case was In re Saint
Vincent Catholic Medical Centers of New York, 05-14945, U.S.
Bankruptcy Court, Southern District of New York (Manhattan).

Daily Podcast

Substantial Contribution, Auctions, WaMu, Top-Hat Plans: Audio

Rewards for increasing the bid at auction, lender control
of auction procedures, the public filing of the Washington
Mutual examiner’s report, and restrictions on distributions of
deferred compensation under so-called top-hat plans are
discussed in the new bankruptcy podcast on the Bloomberg
terminal and Bloomberglaw.com. To listen, click here.

Briefly Noted

Tribune’s Deadline for Revised Plan Pushed Back to Oct. 22

After Tribune Co. announced another change this week in the
settlement underlying a revised reorganization plan, the
bankruptcy judge at a hearing yesterday gave the newspaper
publisher an extra week to file a revised plan. The new due date
is Oct. 22 for Tribune and Oct. 29 for other creditors aiming to
file a competing plan. To read Bloomberg coverage, click here.

To read about the latest change in the Tribune settlement
and reorganization plan, click here for the Oct. 13 Bloomberg
bankruptcy report.

Tribune is the second-largest newspaper publisher in the
U.S. It listed $13 billion in debt for borrowed money and assets
of $7.6 billion in the Chapter 11 reorganization begun in
December 2008. It owns the Chicago Tribune, Los Angeles Times,
six other newspapers and 23 television stations.

The case is In re Tribune Co., 08-13141, U.S. Bankruptcy
Court, District Delaware (Wilmington).

Daufuskie Island Resort Set for Oct. 25 Auction

Daufuskie Island Resort & Breathe Spa on Hilton Head
Island, South Carolina, is being sold a second time. An auction
will be held on Oct. 21 at the Marriott Resort and Spa on Hilton
Head. The hearing to approve the sale will occur Oct. 25. The
resort’s owner, Daufuskie Island Properties LLC, was authorized
in January to sell the project for $49.5 million to Montauk
Resorts LLC. The buyer was unable to complete the acquisition.

The Chapter 11 case began in January 2009 in Charleston,
South Carolina. A Chapter 11 trustee was appointed later. The
petition listed assets of $97.1 million against debt of $88.2
million. Debt includes $71.6 million owing to secured creditors.
The real estate was listed as having a value of $87.7 million.

The case is In re Daufuskie Island Properties LLC, 09-
00389, U.S. Bankruptcy Court, District of South Carolina
(Charleston).

Movie Gallery Says Former Worker Shopping Information

Movie Gallery Inc., the former movie-rental chain, alleges
that a former employee has contacted a potential buyer of its
Video Library unit and offered to provide “confidential
business information” in exchange for a job.

The former employee, Jason Grosz, “recently resigned,”
Movie Gallery said in a court filing last week.

Movie Gallery has demanded that Grosz terminate his actions
and is asking the bankruptcy court for authority to use
subpoenas as part of an investigation. Movie Gallery is looking
for a buyer for the Video Library business.

Movie Gallery’s liquidating Chapter 11 plan is set for
approval at an Oct. 28 confirmation hearing. For details on the
plan, click here for the Sept. 14 Bloomberg bankruptcy report.

Movie Gallery liquidated the last of its 1,028 remaining
movie-rental stores. It had some 2,600 stores in operation when
it filed under Chapter 11 in February. The new filing was less
than two years after a previous bankruptcy reorganization. Debt
when the new case began included $100 million on a secured
revolving credit, $394 million on a first-lien facility, and
$146 million in claims held by second-lien creditors.

Movie Gallery operated under the names Movie Gallery,
Hollywood Video and Game Crazy. It had 3,490 stores before the
first bankruptcy. The earlier bankruptcy case concluded with a
confirmed Chapter 11 plan in May 2007. For details on the second
filing, click here.

The new case is In re Movie Gallery Inc., 10-30696, U.S.
Bankruptcy Court, Eastern District Virginia (Richmond). The
prior case is In re Movie Gallery Inc., 07-33849, in the same
court.

Downgrades

Hollywood Theaters Demoted for Lack of Free Cash Flow

Hollywood Theaters Inc., a subsidiary of Wallace Theater
Holdings Inc., lost one notch yesterday on the corporate scale
when Moody’s Investors Service lowered the corporate grade to
Caa1. The new Moody’s ranking lines up with the action Standard
& Poor’s took against the parent Wallace in September.

Moody’s said that Hollywood will need a “significant and
unexpected” improvement in performance to avoid a “significant
challenge” in refinancing secured bonds that mature in June
2013. Moody’s said that Hollywood hasn’t generated any positive
free cash flow since 2008.

Portland, Oregon-based Wallace operates in small and mid-
sized markets in 15 states. Hollywood has 49 theaters with 546
screens.

Lennar Lowered to B+ After Distressed Asset Purchases

Homebuilder Lennar Corp. was downgraded one notch yesterday
to a B+ corporate grade by Standard & Poor’s. The rating on the
$2.4 billion in senior unsecured notes sustained a similar ding
to B+

S&P acted after Lennar used unrestricted cash to buy three
portfolios of distressed real estate assets.

Lennar’s deliveries of new homes are down 77 percent from
2006, S&P said. Even so, the Miami-based company is “marginally
profitable,” S&P said, in view of the generation of $99 million
in net income for a year ended Aug. 31.

Advance Sheets

Junior Lenders May Object to Sale Procedures, New Judge Says

Shelley C. Chapman, the newest bankruptcy judge in New
York, issued an important decision dealing with bankruptcy
sales. Her new pronouncement involves the Nov. 15 auction for
Boston Generating LLC, the owner of five electric generating
plants in the Boston area.

First-lien lenders contended that second-lien creditors had
no right to object to proposed terms of sale given a
subordination agreement between the lenders. Chapman disagreed
and held that the junior lenders have standing to object to
propose auction and sale procedures.

In her decision from the bench on Oct. 4, Chapman parsed
the subordination agreement and concluded it didn’t mean that
the junior lenders “promised to be silent.” She also said that
second-lien creditors weren’t engaging in “obstructionist
behavior.” Rather, she said they are “very close to the
money” and were attempting to insure that the company would
“discharge their fiduciary duty to get the highest price.”

The judge said the subordination agreement contained no
express prohibition against objecting to bidding procedures.

Generally speaking, Chapman said the junior lenders could
object to auction rules because the issue before the court did
not involve an “exercise of remedies.” Chapman said her ruling
on objecting to sale procedures did not mean that the junior
lenders necessarily will be able to object at the hearing for
approval of the sale. The judge said she could revisit the
standing issue at the sale-approval hearing.

Chapman began her ruling from the bench saying that the
company couldn’t “abdicate their fiduciary duties to their
creditors collectively or individually.” She said a sale-
procedures hearing is not the same as foreclosure in state
court.

Absent a higher bid at auction, Constellation Energy Group
Inc. will buy the facilities for $1.1 billion. Competing bids
are initially due Nov. 1. Final bids have a Nov. 13 deadline in
advance of the Nov. 15 auction. The hearing for approval of the
sale will take place Nov. 17.

The case is In re Boston Generating LLC, 10-14419, U.S.
Bankruptcy Court, Southern District of New York (Manhattan).